From "Five-Hundred Life-Saving Interventions and Their
Cost-Effectiveness," a study conducted by Tammy 0. Tengs, et al.,
and published in Risk Analysis, Vol. 15, No. 3.

Why? Factor analysis of risks (Slovic)

Factors (Slovic)

Intuitions about risk

catastropic

unknown

involuntary

larger proportions

individual

unnatural

commisssion (vs. omission)

zero risk

negative correlation of benefit and risk (Alhakami & Slovic, 1994)

Risk expenditures (McDaniels, 1988)

Mean WTP

U.S. deaths

Implied U.S.

Actual or proposed

Hazard

in survey

per year

national WTP

expenditures

Workplace chemical

$7.95

1

$715 mil.

> $11 mil.

Explosives

$7.68

2

$345 mil.

$3 mil.

Aviation

$46.07

40

$103 mil.

$680,000

Power tools

$15.05

80

$17 mil.

$430,000

Automobiles

$161.30

10,000

$1.3 mil.

$95,000

Individual vs. statistical

"There is a distinction between an individual life and a
statistical life. Let a 6-year-old girl with brown hair need
thousands of dollars for an operation that will prolong her life
until Christmas, and the post office will be swamped with nickels
and dimes to save her. But let it be reported that without a sales
tax the hospital facilities of Massachusetts will deteriorate and
cause a barely perceptible increase in preventable deaths - not
many will drop a tear or reach for their checkbooks." (Schelling,
1968)

Zero risk (Baron, Gowda, and Kunreuther)

Two cities have landfills that affect the groundwater in the area.
The larger city has 2,000,000 people, and the smaller city has
1,000,000. Leakage from the landfill in the larger city will
cause 8 cases of cancer per year. Leakage from the landfill in
the smaller city will cause 4 cases of cancer per year. Funds for
cleanup are limited. The following options are available:

1. Partially clean up both landfills. The number of
cancer cases would be reduced from 8 to 4 cases in the larger city
and from 4 to 2 cases in the smaller city.

2 Totally clean up the landfill in the smaller city and
partially clean up the landfill in the larger city. The number
of cancer cases would be reduced from 8 to 7 cases in the larger
city and from 4 to 0 cases in the smaller city.

3. Concentrate on the landfill in the larger city, but
partially clean up the landfill in the smaller city. The number
of cancer cases would be reduced to from 8 to 3 cases in the
larger city and from 4 to 3 cases in the smaller city.

Individual risk and protective behavior

Viscusi et al.: smokers in Spain:

Education correlated with smoking

Everyone overestimates risks, e.g. 50% vs. 10% risk of lung cancer

But nonsmokers overestimated more.

Worry has independent effects (Baron et al.)

Neglect of probability

Seat-belt example

Rottenstreich and Hsee (2001):
$7 (median) to avoid a 1% chance of a shock
$10 to avoid a 99% chance

People don't ask for information

Neglect of probability: Gurmankin Levy and Baron (2005)

Intuitive toxicology

35% of the public agreed that, ``For pesticides, it's not how
much of the chemical you are exposed to that should worry you,
but whether or not you are exposed to it at all.'' Only 4% of
the scientists agreed. (Kraus et al.)

20% agreed that, ``If something can cause harm to the body in
large amounts, then it is always better not to eat it even in
small amounts'' (Rozin et al., 1996).

26% agreed that a diet free of salt is healthier than the same
diet with a pinch of salt.

Insurance: biases

failure to use subsidy (flood): possibly the result of reducing low
probabilities to zero

ambiguity

Vividness (Johnson et al., 1993):
$14.12 for insurance against death from ``any act of terrorism,''
$10.31 for death from ``any non-terrorism related mechanical failure,''
$12.03 for death from ``any reason.''

Tort law

Biases in tort law

retribution, not deterrence

confusion of compensation and deterrent functions

Biases: Naturalism (Nature is good)

It matters if people cause it.

Subjects in one study were willing to contribute about $19 to
an international fund to save Mediterranean dolphins when the
dolphins were "threatened by pollution" but only $6 when the
dolphins were "threatened by a new virus." (Kahneman et al.,
1993; Kahneman and Ritov, 1994).

In another study, subjects thought that compensation for
injuries such as infertility should be greater when the injury is
caused by a drug rather a natural disease, even if the penalty
paid by the drug maker does not affect the amount of compensation
paid to the victim (Baron and Ritov, 1993).

Polluter pays

Subjects preferred to have companies clean up their own
hazardous waste, even if the waste threatened no one, rather than
spend the same amount of money cleaning up the much more
dangerous waste of a defunct company (Baron, Gowda, and
Kunreuther, 1993).

Undoing

Beattie and Baron (1995) found that people prefer in-kind
penalties over out-of-kind penalties.

For example, if a company caused a fire that destroyed a
forest (beach), subjects would rather have the company pay for
the planting of a new forest (preservation of a beach) than for
preservation of a beach (planting of a new forest). The forest
was to be planted anyway.

Parochialism

Own-group bias.

Self-interest illusion: "I am a member of my group. So
anything that helps my group helps me. Thus, if I sacrifice for
my group, I help myself."

Would cause oppoisition to alternative ways of helping.

Availability cascades (Kuran and Sunstein, 1999)

Global warming may be more "available" than some of the
alternative problems, such as overfishing or flu.

Concerns for risk risk and fall in cycles that sometimes have
little to do with evidence (Loewenstein \& Mather, 1990).

General policy recommendations

Smart government, trust (Breyer, Sunstein)

Libertarian paternalism (Sunstein and Thaler)

Education

Information

"He who refuses to do arithmetic is doomed to talk nonsense."
John McCarthy